Whilst there is no doubt that many people are struggling when it comes to their finances following the last couple of years, which have been financially turbulent for everyone, the one good thing that has come into effect for homeowners is the rock bottom base interest rate, which stands at just 0.5 percent, the lowest it has ever been in the history of the Bank of England.
Whilst this rock bottom base rate is good news for homeowners that are still paying on their mortgages, as it means that their mortgage repayments fall if they are on a variable rate mortgage, it is not so good for savers, many of whom are not getting returns on their savings.
As a result of this situation many people have asked themselves whether it is worth putting the money they save on their mortgage repayments into a savings account given the low level of return that they will get on it. Instead, many have opted to use the extra cash to overpay on their mortgage, which could ultimately mean that they pay far less in interest over the term of the loan and could cut the repayment term dramatically.
For some of those people that have seen their mortgage repayments drop as a result of the base interest rate the savings have been significant, and considering that the base rate has been at 0.5 percent since March of last year many would have saved a small fortune if they had put the money into savings. However, by overpaying on their mortgage some homeowners have made even more in the long run because of the huge amount of interest that they will save and the years that they can cut off their mortgage term.
Industry officials have said that by overpaying by a relatively modest amount each month whilst the going is good and the base rate is low some homeowners could shave years of their mortgage repayment term and could save thousands of pounds in interest. On the other hand putting the surplus cash into savings will earn very little in the way of interest in the current climate.
By overpaying on mortgages consumers can really make their money work for them, and even if this is only possible on a temporary basis until the base rate increases and repayments increase it can still make a big difference to homeowners.